Question

1. Define the two major types of corporate stock. Discuss the characteristics of each of the two types. How does an investor realise a return on a stock investment? (5 points)

Answer 1

Two Major type of corporate stock and their characteristics are -

1- Common Stock - Common stock represents ownership in a company and shareholders of common stock entitled to vote at shareholders meeting. Majority of stocks issued in a company are common stock. Common stocks are also believed to have stocks ownership with high return on investment.

2- Preferred Stock - Preferred stocks also represents ownership in a company however shareholders of preferred stocks are not entitled to vote at shareholders meeting. Preferred stockholders will paid off before the common stockholders in case of bankruptcy or liquidation. Preferred stockholders also get a fixed amount of dividend every year.

Investor gets return in the form of capital appreciation and dividend. Both of these depends on the performance of the stock. Invetsor can calculate the return on invetsment to check the capital appreciation rate. Therefore investor can realise the return of stock investment by reviewing the dividend and capital appreciation.